Bank Of America: "Today’s Stock Market Has Lost Some Of Its Ability To Reflect Underlying Economic Trends"

With Greenspan emerging from his crypt to confirm that he is now as clueless about everything as he was 15 years ago (although the absolutely zero reaction out of "stocks" to his statement that stocks are "very undervalued" is perhaps indicative that SkyNet may just be learning), it is appropriate to remind readers that this thing known as the "market" died some four years ago. What we have now is a vehicle with a "role in the policy fight to support spending" while "today’s stock market has arguably lost some of its ability to reflect underlying economic trends." Not our words - those of Bank of America's Ethan Harris, who, four years after the fringe blogs, finally "gets it."

From Bank of America's "A Market With A Mission"

Equity prices in the US and Europe have been hovering at multi-year highs. To the extent that this reflects powerful policy easing, equity markets may have lost some of its ability to reflect economic trends in exchange for an important role in the policy fight to support spending.

...

The ongoing climb in stocks does not look like a traditional reflation trade. US long rates remain well-behaved in face of brightening data. Equity prices thus seem to be benefiting from a diet of steadfast monetary support from G-4 central banks as well as expectations that global growth and inflation will remain tepid enough to avoid early policy exits.

A contribution exercise indeed suggests that earnings growth expectations have yet to become a key driver of US and European stock prices. Rather, improved confidence and diminished risk perceptions explain, to a significant extent, the equity price pickup in recent months. This is particular true for the euro area, where firms are still feeling the brunt of a long-lived recession.

Risk assets breathed a sigh of relief back in September, when both the Fed and the ECB reaffirmed their commitments to fight downside risks. Six months on, and risk perceptions still seem to be receding. As Chart 2 shows, equity risk premia (ERP) have been edging down in recent months. Altogether, the ERP has shed 1pp in the US since June. In the euro area, however, the ERP has dipped by 2pp during the same time period.

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The key contributors to US and European markets are likely to be major drivers of stock prices elsewhere. Equity returns are usually found to be even more highly correlated than bond returns. Moreover, to the extent that the predominant role of lower risk premia in driving equities has been induced by G-4 policy easing, global stocks may be acting as a transmission channel.

Fed Vice-Chair Janet Yellen recently noted that, even if the interest rate channel is less powerful in these QE days, the central bank is counting on wealth channels to support consumption spending. In other words, today’s stock market has arguably lost some of its ability to reflect underlying economic trends in exchange for an important role in the policy fight. That said, we see more no change to this trade-off on the horizon: the Fed will likely keep purchasing assets into next year.

So there it is: the "market" is now anything but. The only question is whose "consumption spending" is being supported.

Can we please stop pretending as if there is any causal relationship between news from the real world, and what the Fed's wealth transmissions mechanism does. In fact, can the Fed just give everyone its closing price target for 4pm today, a month from today, and for 2013 just so everyone can fast forward to that point, and "discount" their newly diluted wealth?

After doing a thorough analysis using OHLC charts overlaying Elliott wave principle, Fibonacci ratios, momentum rate, the 200 and 50 DMA, crossover and resistance break out trending I have come to the conclusion that the in-depth analyses just preformed is for SHIT because the market is counterfeit!

no, of course there's no overhead resistance. by repeatedly spiking the bowl, bernanke has essentially declared war on short positions. who the hell dares go short (unless properly hedged) when you have a moron who thinks every problem can be solved by easing liquidity in charge of this nonsense...

regardless, mervyn king just trotted out that same old song "the recovery is in sight" - i mean, FFS, HOW many times have we heard that same old crappy line over the past - FIVE years?

meanwhile, his cronies carry on looting the treasuries around the world.

The whole world is going to shit. Seriously. It is all too interwoven and dependant. All riding on the backs of fossil fuels and ponzi growth. There is no way out without pain and the writing is on the wall in big, glow-in-the-dark letters that the nasty combination of finance, politics, and numerous governments, industrialists, religions, etc. all pulling the rope in different directions pretty much sums to a looming disaster of biblical freakin proportions.

But, the US is still the prettiest turd in the toilet bowl. Reserve currency + massively deep markets. Unparalleled military strength. Etc. Including the ability to directly monetize debt.

There is a decent chance that someone else goes down first. PIIGS taking down the EU. Then Japan finally rolls over. The land down under finally wakes up to an American style housing nightmare... etc.

Anyhow, cash will flee those countries. It could wind up here seeking refuge, not necessarily return. Everything US including hard assets, contracts for work, and so forth.

I fully expect it to look like the "recovery we have been waiting for." The markets will probably explode to the upside. So will the US$. But, oddly enough, Gold will hang tight (not tank or "go to the moon") because nothing is really fixed.

For most people, it won't matter because unemployment is still high. Acts like a hyperinflation buffer. Hence, companies will hire. But wages will still be compressed. Taxes will still go up. And commodities will continue to rise. Nothing new, just more activity.

Over the past several years of reading literally 1000's of articles and their headlines and viewing firsthand the outcome I have developed a near HFT speed response sense when it comes to the reality of the situation, sometimes by merely reading the headline.

No they don't come clean, I suspect there is one or two individuals on each floor of an office tower who haven't been able to surpress all common sense, have some integrity, smoke a lot of herbs or read ZH when they're at home (or a combination of).

a cry for help OR the guy doesn't know any better (the pin hasn't dropped yet, if it ever will).

P.S. for the first time last night I began to wonder if the Paul Krugman that posts here at ZH was the real guy from things he wrote, now I don't if that is a cry for help but psychiatrists would have a field day with that one if it really is.

Hey, everybody / Won't you just look around / Can't anybody see? / Just what's going down / Can't you take the time? / Just to feel / Just to feel what is real / If you do / Then you'll see that we got a raw deal / They're killing everybody / I wish it weren't true / They say we gotto make war / Or the economy will fall / But if we don't stop / We won't be around no more / They're ruining this world / For you and me / The big heads of state / Won't let us be free / They made the rules once / But it didn't work out / Now we must try again /

Fed counterfeiting money for its shareholders who launder the money in their own rigged casino & use the proceeds to throw lavish bar mitzvahs for young Solomon & his friends... It's all about keeping up with the Schwartzes...

yes the majority recipients of this free money know that it's all bullshit and find ways to quickly park all this free cash out of harms way. Benny B is probably only getting 2 cents on the dollar of market lift and his merry band of banksta niggas are pocketing .98 cents worth of tax payer funding. When it all caves it will be very important to hunt these scum bags down the way we went after Bin laden even if we have to break sovereign country laws and extract these niggas via helicopter raids at night etc.

Just read on Yahoo Finance that actress Mila Kunis is tweeting about her interest in the stock market. Do yourselves a favor and make for the exits because we are at or near a cyclical top and this bitch is about to tits up.

"Religion" is all about chasing the dollar... When the Soviet Union broke up, so did the state payments for the teaching jobs, so the parents did the next best thing... They loaded up the truck & they moved to BEVERLY [Hills that is], & whored out their little 10 year old Lolita to "The Producers" [who get off on that sort of thing]...

I'm 44, house is paid of and I am not playing the games. I will however admit I can feel the magnet sucking me into the scheme of things there's no escaping. Not within the US borders. I prefer to stay and be a pain in someone's ass.

I'm still having nightmares over some of the conversations I had with the early 20's crowd at a bar last week. They don't know fuck about anything except fucking, alcohol and getting their worthless degree. It's official, they've succeeded in washing away events like 9-11 in one generation. Granted there are many young ones not polarized and even many of them consider things like 9-11 an old event and not worth discussing.

Shits going to get real interested when these monsters put the hammer down.

The market exists for two reasons: 1) to skim low-risk profits from naive/brainwashed investors and 2) as a propaganda front that can be lofted ever higher by authorities for the purposes of managing perceptions, i.e. the market is higher, so the economy is doing great, never mind what your own eyes and experience are telling you.

And the big three

3) To control the price of commodities regardless of true market value to make inflated fiat currency look stable.

The game gets real boring real quick when you are only competing against yourself. Forget about the moral stuff. Wolves can't eat themselves, even that realization maybe sinking in with some of these snapper heads.

it is staggering how quickly the poorly rated debt deals are selling out. the public is just pouring money into real junk. BAC is really not positive on the equity market short term, but like evryone else, can't possibly pinpoint an inflection point. but for the record they're warning of more downside risk than upside. they are the most upbeat on gold they've been in a while. evidence of etf liquidation may mean capitulation, to use their term.

You either play the market based on fundamentals or based on your assessment of manipulation going on (currencies, commodities, stock markets etc)

Example scenario #1 (approach based on fundamentals)

You observe in various news media that China growth is slowing, they have slowed down building giant ghost cities, they themselves are pegging the growth rate to 7.5% a modes figure compared to past years. You observe in the news media that miners are anticipating lower sales. For example, the price of iron ore is dropping. You observe in the media about Japan and abeconomics and how they have started debasing their currency. Now, Japan is a big importer of oil, natural gas etc. As the currency weaken, they need to pay more in yen terms for the oil, natural gas etc which means a pressure on demand. You observe that problems in Europe are not fixed, just papered over. You observe in the papers that US is going to be self-sufficient in oil in the next few years and more and more oil and natural gas are being extracted with latest drilling techniques. Based on all the above, you go - well, the price of oil cannot keep going up but rather it should drop to somewhere in the $75 - $80 range atleast. You take a short position only to see the markets going against you.

Example scenario #1 (approach based on assessment of manipulation)

This approach is based on an assumption that every price out there is manipulated and is tied to other prices. Which means, there are algorithms in play which do the buying and selling based on thresholds in prices of currencies, commodities etc. In this scenario you see that dollar is weakaning (a trend which can last from an hour to a day or two). You totally ignore the fundamentals and take a long position in oil because dollar is weakening and lo and behold, you are handsomely rewarded. Then you see that dollar is strengthening after a couple of days. You short oil and other commodities and lo and behold, you are again rewarded.

You either play the market based on fundamentals or based on your assessment of manipulation going on (currencies, commodities, stock markets etc)

Example scenario #1 (approach based on fundamentals)

You observe in various news media that China growth is slowing, they have slowed down building giant ghost cities, they themselves are pegging the growth rate to 7.5% a modes figure compared to past years. You observe in the news media that miners are anticipating lower sales. For example, the price of iron ore is dropping. You observe in the media about Japan and abeconomics and how they have started debasing their currency. Now, Japan is a big importer of oil, natural gas etc. As the currency weaken, they need to pay more in yen terms for the oil, natural gas etc which means a pressure on demand. You observe that problems in Europe are not fixed, just papered over. You observe in the papers that US is going to be self-sufficient in oil in the next few years and more and more oil and natural gas are being extracted with latest drilling techniques. Based on all the above, you go - well, the price of oil cannot keep going up but rather it should drop to somewhere in the $75 - $80 range atleast. You take a short position only to see the markets going against you.

Example scenario #1 (approach based on assessment of manipulation)

This approach is based on an assumption that every price out there is manipulated and is tied to other prices. Which means, there are algorithms in play which do the buying and selling based on thresholds in prices of currencies, commodities etc. In this scenario you see that dollar is weakaning (a trend which can last from an hour to a day or two). You totally ignore the fundamentals and take a long position in oil because dollar is weakening and lo and behold, you are handsomely rewarded. Then you see that dollar is strengthening after a couple of days. You short oil and other commodities and lo and behold, you are again rewarded.

Although Ethan Harris is no dummy, nor is his colleague Michelle Mayer. (I swear, though, whenever I listen to her on Bloomberg, she sounds like a 16-year-old.) I wonder what sort of, ahem, career constraints they're operating under.

I miss Lauren Lyster -- I mean the pre-Yahoo Lauren. Talk about naked and in your face, and I don't mean her great legs, which I don't in any way mean to criticize in any case :)